STO - USD/JPY soars off uneventful summit

Japanese Q4 GDP may have come in slightly softer than expected in the last few hours, but by all accounts it was the conciliatory tone struck between Donald Trump and Shinzo Abe in their meetings on Friday and Saturday that have helped propel USD/JPY markedly higher. There had been some concern that the conversation would focus on campaign pledges that had included Japan’s need to pay more for US defence aid and the idea that the country had been artificially weakening its currency, but with these points failing to register, it’s been bigger factors such as Friday’s bumper close on Wall Street that have been left in the driving seat.

The day ahead is certainly light in terms of the fundamentals, although at 10am GMT we have European Commission economic forecasts, so this could provide some easy direction for Euro crosses. EUR/GBP is approaching lows for the year and this really could go either way, although the risk may be biased on the upside for the pair, especially if we see more upbeat commentary over the health of the Eurozone. Yes, Draghi has said it’s too early to be thinking about tightening monetary policy, but if the commission sounds a hawkish note over something like inflation, then pressure will surely increase to reconsider the appropriateness of the current stance.

The Aussie dollar is likely to be in focus later with Tuesday seeing the release of the NAB business confidence survey at 12:30am GMT and Chinese PMI readings at 1.30am GMT. We do seem to be moving away from that recessionary threat that was facing Australia a few months ago, although there’s still the thorny issue of trans Pacific trade under the Trump administration to face off against. Any assessment of business confidence may therefore help cement the positive picture here, whilst an upbeat Chinese inflation reading would also add in another layer of support.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as an Investment Advice.

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